Pandora wins on appeal. But stay tuned.
This week, the 2nd Circuit Court of Appeals ruled in favor of Pandora, upholding a ruling by Judge Denise Cote in affirming the 1.85 percent of revenue cost set by the rate court as “reasonable.” Maybe, but any way you slice it, songwriters and composers are still getting hosed by streaming services You’ve probably seen some of the headlines or statements made by songwriters you know saying things like, “20 million plays earned me about two dollars.” Maybe you didn’t care because you figured the famous person who made that statement was already rich; but setting that logic aside, it ought to be clear that today’s generation of new songwriters and composers will not be building professional careers based on revenue streams that turn millions of plays into pennies.
Music streaming is cool and convenient, but even as the dominant players in the space congratulate themselves for being “innovators,” the reality is that a tiny handful of guys are making millions of contemporary dollars while enjoying the benefit of paying antiquated rates to publishers, who in turn pay songwriters and composers. This is because ASCAP and BMI (generically called PROs for Performance Rights Organizations), who traditionally negotiate and collect fees on behalf of publishers for public performance licenses are locked into consent decrees whereby a court has set the rate at 1.85 percent of revenue for radio broadcasting. Spokespeople for ASCAP have consistently pointed out the absurdity that this particular class of artists is more regulated than the corporations that profit by using their work. As such, the PROs back the proposal of the Songwriters Equity Act in an effort to change rate setting to better conform to the new market.
It should be obvious to anyone that a Pandora-like service isn’t exactly radio. The collective earnings of thousands of terrestrial radio stations add up to considerably more than the revenues of a single Pandora. At the same time, a single Pandora reaches a global audience, even obviating the need for listeners to use terrestrial radio at all. That’s just technological progress, and nobody hopes or expects to put that genie back in the bottle. But because the one Pandora is allowed to pay the same percentage of earnings as the collective of all terrestrial stations, that’s the reason millions of plays worldwide translates into pocket change for songwriters and composers.
So, in a nutshell, the appellate court ruled that ASCAP may not raise its rates to new benchmarks that would be aligned with this dramatic shift in the market, and it also ruled that the individual publishers Sony/ATV and UMG may not withdraw only their digital rights from ASCAP in order to negotiate those specific licenses separately with Pandora. But consumers should not assume this is a “win” for streaming that will perpetuate their desire to have all the music they want for free for the rest of time. Because now the major publishers are faced with an all-or-nothing option. They either leave all their rights with ASCAP and BMI or pull out entirely, which Sony/ATV’s CEO has already indicated may be the response to the courts not allowing them to extricate themselves from the outdated consent decrees. Meanwhile, the Department of Justice is reviewing the consent decrees and may yet recommend that the courts are wrong in their determination that a rights holder may not partially withdraw one of its bundle of rights without withdrawing entirely from the PRO. Either way, that ruling will likely be the end of that particular debate.
If the larger publishers withdraw from the PROs, they’ll demand higher rates from Pandora no matter what; but attorney and blogger Chris Castle in this post suggests Pandora doesn’t care about that if they can effectively bust the PROs by forcing the big publishers to jump ship and leave the organizations populated with smaller publishers, who have limited bargaining power. Thus, instead of a system of collective bargaining that represents both large and small publishers, we may see a bifurcated market in which the large players negotiate against one another while the smaller players continue to choke on the crumbs.
There’s no reason to assume this will mean longterm benefits for consumers, either with regard to affordable access or especially with regard to fostering and sustaining the greatest diversity of works. At the same time, what may happen to public performance licenses other than streaming is unclear. Presently, your local bar pays an affordable fee to be able to play damn near every song ever recorded, and it pays that fee to no more than three PROs — ASCAP, BMI, & SESAC. If the major publishers are no longer part of those catalogs, your local bar owner, depending on what music he wants to play as well as other factors like size of the business, may have to pay for all three PRO licenses and also deal with the major publishers, who will be free to charge whatever they want based on any criteria they decide because they are no longer subject to the ASCAP consent decrees. If nothing else, it sounds like a pain in butt for a small business owner compared to the old system, but it could get rather complicated when you consider the number and types of venues, even websites, around the world that traditionally cover their music needs with one to three blanket license fees.
Whatever is to come, people should be clear that Pandora’s strategy isn’t about consumers, it isn’t about innovation, and it sure as hell isn’t about competition. Nobody I know dislikes streaming in principle. What’s not to like? But it’s not THAT innovative. If you didn’t see it coming at least by the time Napster became a thing, you weren’t paying attention. The companies that have emerged as dominant players in this space aren’t particularly great visionaries; they’re just the guys who were in the right place at the right time to capitalize on a relatively obvious means of distributing music akin to what we historically called “radio.” So, let’s not beat the word innovation to death when talking about companies like Pandora; and let’s especially not get suckered into thinking this is about competition.
It is the nature of business leaders to want to dominate, which is healthy in a market that doesn’t foster natural monopolies. Unfortunately, the Internet does foster natural monopolies. Why do you think Google+ couldn’t take, or even share, the market with Facebook? Because most of us don’t really need two of the same kind of social media environments in our lives. Hell, many of us, have to force ourselves to limit the use of just one. It doesn’t matter how dominant Google is in other areas or how good their programmers are; the Internet generally favors one winner at a time in certain lines of business. And so it may be with music streaming.
On that note, it will be interesting to watch the relaunch of Apple’s entry into the streaming market. Reported to be a subscription-only service, Apple may be in a position to offer the best available terms to all publishers and re-assert itself as the only game in town much as it did with digital downloads in the wake of Napster. Of course that move was directly tied to sales of a little device called the iPod, produced by the company that rules in the arena of attracting customers to new gadgets. Streaming, of course, isn’t about gadgets, at least it’s not about any one particular gadget. At the same time, both European and US trade officials are already investigating whether or not Apple is using its still-dominant position in digital downloads as leverage against rivals like Spotify and Pandora. Sure, but again, I think there are natural reasons why one player at a time will be dominant, regardless of trade regulations.
Whether it’s Pandora, Spotify, YouTube, Apple, or some other company, one downside of digital, worldwide distribution is that consumers may not need more than one service provider when all is said and done. And, if all this is heading toward consolidation of delivery models and consolidation of production models, while limiting the variety of career paths for the next generation of writers and composers, there is no guarantee that either consumers or makers of music are going to win in the long run. As with other copyrights, the so-called reformers seeking “balance” in the new market are only too happy to leave intact any outdated provisions that favor their own earnings to the detriment of those whose works are essential for their business models to work at all.
© 2015, David Newhoff. All rights reserved.Follow IOM on social media: